Latest / Radio Davos / The world really is more unpredictable than ever - two 'chief risk officers' explain why

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The world really is more unpredictable than ever - two 'chief risk officers' explain why · Radio Davos

0:02
Welcome to Radio Davos, the weekly podcast from the World Economic Forum
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that looks at the biggest challenges and how we might solve them.
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I'm Robin Pomeroy.
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This episode of Radio Davos is also a live streamed discussion
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produced in collaboration with the Forum's Strategic Intelligence,
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which brings together expert insights and live discussions to help forum partners
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and digital members better understand the trends shaping the future.
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That's what we're doing on this episode.
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On this episode, we're looking at global risks
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and how companies and organisations can prepare for them.
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I have a co-host for this episode and this session, Mitali
0:37
Chatterjee, manager of global risks at the World Economic Forum.
0:40
Hello, Robin, and an absolute pleasure to be here.
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Today, we are here to talk about the work that Global Risks
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Initiative does, our flagship publications and our latest publication,
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but I'm sure more to come in the next one hour.
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Exactly.
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We've got two great guests who will join us online in a moment.
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When it comes to risks and the work that you're involved
1:01
in, the team you work with, here at the World Economic Forum,
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the report I'm very familiar with is the Global Risks Outlook,
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which is published every January, just before the annual meeting in Davos.
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The report we're going to be talking about today is different from that.
1:16
Tell us about these two reports. Yeah, absolutely.
1:19
So firstly, let me start with what we do at the Global Risks Initiative.
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So we try to create a shared and deeper understanding
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of both emerging as well as systemic risks that impact organisations
1:32
and economies, and help them build resilience in general.
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Now, there are two aspects to it.
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One is the Global Risk Report, which looks at the macroeconomic
1:44
implications of the risks landscape across five categories.
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It is societal, economic, environmental, technological, and geopolitical.
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And we do this over a one year, two year, and a 10 year time frame.
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And then we also have another report
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which we have just launched called Risk Management Reimagined.
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Now, this report looks at more the microeconomic implications
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of the macroeconomic risks that I just spoke about,
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and that too at a firm level.
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And why do we do that?
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It is because organisations today are trying to navigate
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a very complex risk landscape, where risks do not appear one at a time.
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So I'll give you an example.
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So we all know that currently the ongoing Middle East conflict has resulted
2:37
in constraining energy availability and raising prices.
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So there goes a geopolitical shock.
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There could be a natural disaster. For example, the recent floods
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and landslides in Nepal. That could result in a disrupting industrial supply chains.
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There could a cyber attack which disrupts business continuity.
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And the thing is that all these risks are not happening sequentially.
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They are happening simultaneously.
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And that is the reason why we need to look
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at how organisations are trying to deal with these risks,
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this complex web of risks, and that's
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what we are doing in our latest publication.
3:16
Yeah,
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and before we introduce our two guests, just before I came
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in the room, I had a look back on the global risks outlook from January.
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There'll be a new one coming out just before this Davos in January, 2027.
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It's very interesting because some of the risks,
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particularly the long-term, the systemic risks don't actually change.
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Climate change is a risk.
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Unless the science suddenly changes, we find out something new,
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pretty much the risk is the same.
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It does reflect what attitudes there are to that risk.
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And in that last risk outlook, the Global Risks Report 2026, geo-economic
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confrontation was the thing that had really come to the fore
3:57
and concerns about interstate conflict.
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And that was before, a couple of months before,
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the war in the Middle East, which you've mentioned there, has added to
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all those other risks in terms of supply chain, this, that and the other.
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It's really worth looking back on that one.
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AI anxiety was one that soared up through the rankings.
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I think AI as a risk is probably changing day by day, week by week.
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But certainly the attitude of the people you survey for these
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reports show
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it'd be very interesting to see where that drops next January.
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So urge you to look at this report on risk management
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and then that more macro
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report, the global risk report. That said, let's turn to our guests.
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Tell me who they are.
4:46
Absolutely.
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So we have a stellar panel joining us today online.
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So we have Natasha Fields, who is the Chief Ethics,
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Risk, and Compliance Officer at World Trade Organisation.
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And we also have with us Torben Oeder,
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who is Group Chief Risk Officer at Volkswagen Group.
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Welcome, Natasha and Torben.
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It's an absolute pleasure to have you here with us.
5:11
Great to see you. Thank you so very much.
5:13
Thank you.
5:14
Thank you very much for having us.
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I want this to be just a really involved discussion.
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Feel free to leap in, either of you.
5:21
Kick us off with a question, though, please, Mitali.
5:23
Sure.
5:24
So let me ask a question to both of you and feel free to answer.
5:29
If we would broadly classify risk into three categories,
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it would probably be known knowns, known unknowns and unknown unknowns.
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Now while the former category of known known is the one
5:41
that we can best predict probably using historical data.
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How do you really tackle the other two
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categories of risks that is known unknowns and unknown unknowns?
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And can you give us some examples from your respective organisations
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and industries?
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Maybe just from my experience within the Volkswagen Group.
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Of course, we come from the experience of the known risks,
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let's say. It's very easy to, let say, calculate them
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in terms of probability of occurrence or potential financial impact.
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But as you said, Mitali, it's always a challenge when it comes to the unknown unknowns.
6:19
What we do there is we try to identify signals
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and focus on the signals
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that are out there, focus maybe on what administrations and leaders
6:28
all over the world are stating in their
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official releases and what they are doing,
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and try to reduce the noise. Because also from the media, there's a lot of noise.
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And we have to always reduce that one in order identify
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really the signals in order to identify where the world is leading.
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You were just referring to the geoeconomic situations
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that is increasingly
6:57
the situation and the risk landscape all over the world.
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And that is what we are really closely monitoring in terms of
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different kinds of signals, whether it's how many ships are going
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through the Strait of Hormuz or really what are the world leaders
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saying and stating.
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And if I may add to that, completely in agreement with you, Torben.
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I would like to say we are in the age of unpredictability.
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We can no longer predict as risk professionals, as organisations,
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with any sort of degree of certainty as we used to before, what's coming.
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And those unknown unknowns, as we like to say, how do we react to them
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is the question that I think all businesses and all risk professionals
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want to get to. And it's about those signals,
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completely in agreement with you, Torben.
7:45
It's about the signals, watching other things happen,
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but not looking at them in isolation. But looking at how it interacts
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and that interconnectivity between these signals that we're seeing,
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because they're not known risks at the minute. And then doing some kind of
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scenario planning or analysis or making some assumptions.
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What do we do if it goes left or right
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or we don't know? How can we actually still safeguard
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what our priority is, if it's for profit or not for profit.
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Back again, it's that looking at those signals and thinking in advance,
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how do we respond if these signals
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are telling us something that we can't determine just yet.
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Had a great question from Paula Gonzalez, who is asking, could you share a bit more
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about how you identify and monitor emerging risk signals?
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Are you using AI or machine learning to scan and detect
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patterns across large volumes of data? And if so, how do you reduce the noise, which is
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what both of you have just been saying, and distinguish genuinely
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actionable signals from weak or irrelevant ones?
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Do you, either of you, use AI to kind of model
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what could be potential future scenarios?
9:03
As much as we can. As much as we
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use AI.
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There are different ways of using AI.
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Of course there is pattern recognition where AI already in the past
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helped us a lot reducing the noises for example.
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Also with reduced head counts everywhere
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in the industry, you've got to find ways in order
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to, you know, look, see your way through the jungle.
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And therefore, AI definitely helps us a lot.
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Are we at the end of the stage?
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Definitely not.
9:35
It will even increase
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and also the Risk Report also
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gave us a good example of how the world in risk
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management will look like in the future, where you come to the office early
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in the morning and then look at what the AI produced for yourselves.
9:54
But then human judgement always comes in because you cannot rely only on AI
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because human judgement is really crucial in terms of.
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You know, which way to follow and then which way also to lead
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the strategy of each individual company.
10:11
No, I completely agree.
10:14
A lot of the work
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that we do at the WTO, the World Trade Organisation, for example,
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just published in the World Trade
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Report is based on that data.
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It's founded on data and AI helps.
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We're probably not as far along as probably some others.
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But it's about that human interaction of human interpretation of that data.
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But AI does help that modelling.
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It's the answer to the question
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really is yes, using that quantitative analysis,
10:45
but having the human interpretation element in it, very, very key.
10:49
And just to give you a bit of context, our recent report
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which was just launched, the Risk Management Reimagined one,
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which by the way, we crafted with our chief risk officers communities,
10:59
so Torben and Natasha were very much a part of it,
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so we were trying to answer this exact question, you know
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where is it that AI comes in comes in use
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and where is it that human judgement comes in
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and what are the intersections between the two?
11:12
And we realised that there are certain things like anomaly detection,
11:16
monitoring, aggregation, pattern recognition,
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these are tasks that AI could probably take a lead on,
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while things that require
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providing context, strategic decision making, holding accountability,
11:29
ethical judgement, that's where humans could take the driver's seat.
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So while many people would say that the lines are blurring between the two,
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how do you really decide who does what,
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I think there's still a case to be made.
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We had, all three of you have already answered another question
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that's come in, from Rakesh Khurana
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saying, could it be that the expansion of analytical capability
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has come at the expense of other forms of institutional intelligence, e.g.
11:57
practical wisdom?
11:58
I think what you're saying is not really. I think the application of AI
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in some jobs, we've kind of,
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what's the word,
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we've tasked AI with writing our emails, or writing, maybe drafting our reports.
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In this case, it sounds like, no, it's a starting point
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and you can model and probably do lots of calculations for you,
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but that human input is extremely important.
12:24
I don't think it's wiped that out at all.
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Would you agree with that?
12:31
I absolutely agree.
12:32
Absolutely agree with that.
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The human element is so key and so fundamental with the analysis,
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it gives you that raw data.
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But without understanding the history of what what's behind the data
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and what are those other things that are not actually speaking to the data,
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and that's where we need the human element.
12:52
So absolutely, yes,
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I agree with you. AI and that data intelligence is great,
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but the interpretation and the manipulation of that data
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is that's where the human element and the experts come in
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and those kind of be replaced at the minute.
13:08
And to add up on this, sorry, but I think that's
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also a very important point,
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at the end of the day, each board, no matter what company
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one is working for, is liable on their decisions.
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And that's human decisions that the board is taking.
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And I think from risk management side, that we can support that,
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but it's a human judgement of which way
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the board has to decide which road they will take.
13:38
And it's also from a liability point of view, as I said,
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it's no way that AI will replace risk management,
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for example, in total. This will not happen.
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There's always got to be that human judgement.
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Let's go to
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our audience again from Lutfi Siddiqui, who says, we've seen
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some dramatic risk events flare up in recent months.
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Please give us some concrete example of such an event
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and how your risk function has responded differently
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from how it would have responded a couple of years ago.
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I mean, I was going to ask you, Mitali, you already mentioned the war in the Gulf.
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You've mentioned the floods, that kind of landslide in Nepal things
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which you could potentially imagine,
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but here they are suddenly on your plate.
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Most of us aren't
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chief risk officers.
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I'm not entirely sure day-to-day what you do.
14:29
What do you do in a situation like that?
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And as Lutfi's asking,
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give us an idea of how you walked yourselves
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and your organisations through an event like that
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and maybe tell us if that's changed from what it would have looked like
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two, five years ago. I
14:45
think in the field of geopolitics,
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because I think that's a very good example.
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When
14:51
we look back five years, it was more or less stable.
14:54
We know the different poles all over the world.
14:58
And now with also having the Chinese
15:01
being very,
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not only educated, but very strong
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in their economic fields. And in the automotive industry,
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they have taken the lead in several technology fields
15:17
that matter to our industry and automotive.
15:20
Now, for example, the Chinese are protecting
15:23
also this lead by
15:26
just in this year, they launched a couple of
15:30
of new export regulation,
15:33
regulatory topics.
15:36
And for example, Europe is now responding with their Industrial
15:40
Accelerator Act where this made in Europe idea has to come to life.
15:46
So what does that mean for our automotive industry?
15:50
Those days where you develop, let's say, one car
15:53
and then sell it all over the world, those days are just over.
15:57
So, when we have this new geopolitics
16:02
and geoeconomic poles
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all over world, then you have to
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adopt your business model and make it way
16:12
more localised in terms of regional sourcing,
16:15
regional development, regional sales, regional whatsoever,
16:19
regional production, in order to be more resilient
16:22
and find your way through this world of uncertainty
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as you all already mentioned.
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Let's stay on cars and we'll come back to the WTO in a moment.
16:35
Just interesting,
16:37
where you kind of gather your intelligence from,
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you might be going to people on your board or within your company and saying,
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this is happening.
16:45
China has just done this.
16:48
I imagine that happens.
16:48
But also, you probably get colleagues who are coming to you who are saying,
16:53
Torben, this is a massive new risk now. Or it's coming.
16:57
I can see this coming in two months' time.
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Is it a combination of those things?
17:01
I mean, day by day, how does it look to you?
17:04
Yeah, it's really day by day.
17:06
This is why I like risk management so much,
17:08
because you're, let's say, the spider in the net.
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You have your intelligence.
17:12
I have my risk management team all over the world.
17:16
This is also Volkswagen being a global company,
17:20
there are risk management functions all over the world,
17:22
as I said. We have different brands.
17:24
Of course, I
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have colleagues who call me from, I don't know, a purchase department
17:29
or whatsoever when they report something to me.
17:33
So this is how we come up with the overall risk situation,
17:37
overall risk landscape.
17:39
Should we move to trade, global trade, WTO?
17:43
I have a question for Natasha.
17:45
Simply, what risks at the World Trade Organisation concern you the most?
17:50
Generally, it's about fragmentation.
17:52
That should be no surprise.
17:53
It's fragmentation of the world economy and how that's
17:58
filtering into geopolitical and technical blocks
18:02
and the impact that that is having on weakening the multilateral trading system.
18:07
The impact that is having on reducing
18:12
trade growth and economic growth for everyone, for all
18:17
economies and all countries.
18:21
Having said that, yes, it is the one risk that we're really focusing on now
18:26
and we're very concerned about. Notwithstanding
18:30
that, we still see that there's an opportunity of everything
18:34
that's happening and the fast-paced moving world that we live in.
18:39
What we are seeing is that global trade is still working.
18:43
75% of global trade is still operating
18:48
under the WTO rules and agreements
18:51
that have been in place for many, many years.
18:55
So there is still that level of hope,
18:59
but there's still work to be done, because 75% is not where we were last year.
19:04
But there is hope that we're still doing it.
19:07
But the implication of that fragmentation
19:11
is a bit concerning.
19:14
And Natasha, if we were to move from the most important
19:17
risks that you face to the risk management techniques more specifically,
19:23
I'm just curious to know how are the risks that you faced
19:27
in an international organisation or the risk management techniques
19:31
in an international organisation
19:33
different from that in a private sector organisation?
19:37
And this could be in terms of differences in access to technology,
19:41
resources, manpower, toolkits, models
19:45
that you develop and validate, you know, anything that comes to your mind.
19:49
Yeah, that's a good question. So
19:52
traditionally and historically,
19:54
risk management started in private sector before it did
19:58
in multilateral organisations or
20:00
in government departments generally. That's a general statement.
20:06
So you have private sector that was already ahead of the curve
20:09
in terms of its embedding,
20:10
its development, its putting in frameworks and everything else.
20:14
Now you have the multilateral organisations,
20:18
international organisations as a whole, that are keeping up to pace with that.
20:22
The differences probably comes in, of course,
20:27
the objectives of private sector stakeholder benefit,
20:33
as well as investment in ensuring that's delivered
20:38
and you have the international
20:40
organisations that are more public sector-focused and driven,
20:44
and the geopolitical strains on that because it's member-driven.
20:48
So you have those differences, but because of that, you have the implications
20:53
of budget and cost and development in these systems.
21:00
By and large, private sector
21:02
has more budget to put on risk management, risk management,
21:07
embedding and development and international organisations less so.
21:13
That
21:14
doesn't mean that international organisations are behind,
21:17
there are some that I know are world-class and really leading on risk management
21:21
but it's just on a whole just a little bit behind and less
21:24
responsive than the
21:27
private sector is.
21:28
But I think this conversation and these sorts of connections
21:32
that we've been making in the profession
21:36
about sharing information, about sharing how we do things,
21:40
how are we actually going to do that horizon scanning between private sector,
21:45
public sector and how we can actually give benefit is helping.
21:48
And we can only get better
21:52
by working together in the profession, I think.
21:55
But there is a difference.
21:56
The difference is because historically, private sector was ahead of the game
22:01
and they had more resources devoted in terms of the size of their teams,
22:06
the systems that they used, the tools that they use.
22:10
However, international organisations are coming online as well.
22:15
And, Natasha, so when
22:17
a big news event happens that's going to change the risk
22:20
outlook for everything, including global trade,
22:24
do you wake up in the morning,
22:26
a war has broken out, for example, rush to the office
22:29
and kind of deliver your assessment of how that's impacting?
22:34
I mean, how does it kind of physically walk and talk
22:38
when the story has, suddenly the narrative's changed.
22:42
It's one of those unknown unknowns.
22:44
We weren't expecting that, or it could have happened,
22:47
and now it has happened.
22:49
What does that do?
22:50
Do you go and,
22:52
you know, readdress those computer
22:54
models again, put a different scenario together?
22:57
What do you actually do? Maybe, you know, Torben,
23:00
also feel free to jump in if you want to tell us how you do that.
23:04
I do have to say we have a very great team of economists
23:08
in the WTO and they do that modelling and they've actually done that modelling
23:12
and it's part of the World Trade Report that has recently been released
23:17
where they actually show models of what will happen
23:21
if this happens if that happened. For example,
23:26
with, in recent times, when there was changes of tariffs,
23:30
they actually did a lot of modelling for member countries to understand
23:34
if it goes left, right, or stays the same, how is that going to
23:38
impact on that particular
23:41
member country.
23:42
So yes, it's a lot work,
23:43
and yes, sometimes it can be very reactive,
23:46
but there should be some sort of plan in the background,
23:50
some signal that we were getting anyway, that we may not have gotten it right,
23:54
but we'd have had an idea of how that is going to impact
23:58
on the global economy, on members, and on world trade as a whole.
24:02
So that is something that does happen, that is led by our chief economists,
24:05
because they use
24:06
the more economic background of that rather than from a risk perspective.
24:10
And they're very, very granular on how they analyse the impacts of
24:15
that, of whatever has just happened last night or today on their models.
24:20
Yeah, maybe for the Volkswagen Group,
24:23
what you described, Robin, is like my dream,
24:26
and that's where I'm trying to lead
24:30
my team to. Unfortunately, Volkswagen
24:33
is that big that we have so many specialised departments.
24:36
We have someone
24:38
who are dealing with the macroeconomic types,
24:41
then we have purchase department and all that stuff.
24:44
Hopefully, we have seen that in the signals before that something happened,
24:48
so we can really prepare for because that's the job of risk management,
24:51
not act when something already occurred, but be ahead of the curve.
24:56
That's what we're always trying to aim at.
24:59
But then when it comes to, okay, something happened,
25:02
Torben, what is the impact for the Volkswagen Group?
25:06
I would say,
25:08
as also being the spider in the net, we are really good at
25:11
you know collecting the data from the respective and responsible
25:13
departments really really quickly and giving them like the right
25:19
answer of what the impact of the
25:22
of our industry for our industries and for our brands are.
25:26
But we're not there yet at the target state.
25:28
I have to admit that I'm working on it.
25:31
But this is also where risk management has to change.
25:34
I mean, we're coming from a world
25:36
where you have like on a quarterly basis, a risk report.
25:39
And this definitely, risk management, has to evolve or has to evolved
25:43
to a situation where you had like ad hoc impact analysis is at hand.
25:48
And this is where the industry is leading.
25:51
Is it a more changeable world now?
25:53
I think every generation thinks, oh, this moment in history.
25:57
But if you look back, Second World War breaks out, First World War,
26:03
it's always been a crazy old world.
26:05
Is it really today a riskier or more changeable world than it was?
26:12
I definitely want to jump in and say yes.
26:14
And the reason for this is
26:16
I think historically there was one particular event
26:20
that could have been a major one, but it was one at a time.
26:23
The difference that I think we're seeing now,
26:25
and this is why I like to call this the age of unpredictability,
26:29
is because they're not coming in a unitary form.
26:32
There is multiple risks that are materialising
26:36
or that's coming to a crescendo all at the same time.
26:40
Or if there's one particular risk because it's impacting
26:43
so many different aspects of the globe,
26:48
how do you manage that?
26:49
And I think that's the difference.
26:51
And also the changes previously, we would have been able to predict
26:56
with some sort of certainty, some sort that this is going to come.
27:01
For example, in years before COVID, one of the risks
27:05
that I always had on the risk register was a risk of an epidemic or a pandemic.
27:09
I had no idea what COVID was, but that's just using the data that,
27:13
you know, it was coming around.
27:15
The world has moved on from that,
27:17
and the risks are materialising or may materialise.
27:21
Not only are we not aware of them, but we don't understand, or
27:25
we don't have the visibility of how it's going to impact multiple streams of, be it
27:32
geopolitics,
27:32
technologically, public health, food and water supply,
27:36
it's all having impacts everywhere.
27:38
So yes, I do think we're in the age of that big change.
27:43
Torben, do you agree if you were in a spider's web 50 years ago,
27:48
would it have been shaking a little less often than it does today?
27:51
Yeah, yeah, definitely.
27:53
And especially, I would say, for the automotive industry,
27:57
it was also not that risky.
27:58
I mean, if you look back 50 years ago, a car in Germany would cost
28:04
for roughly, let's say, one third of a yearly salary. That was the amount,
28:10
or the car price,
28:13
for a usual German citizen.
28:16
Nowadays, and if you look at the car prices,
28:21
they increased very much, unfortunately, different reasons for that.
28:25
But now it's more like a 10-month salary that a car costs from a yearly
28:31
salary of a usual worker. So
28:36
the reasons for this are
28:38
different regulations in terms of emissions, in terms of safety,
28:44
increased material costs, increased energy prices,
28:49
all that stuff that leads up to better cars, more safer cars, more cleaner cars,
28:54
all of that.
28:55
But at the end of the day, the market is reduced
28:58
and it comes to different crisis, all occurring at the same time
29:03
as Natasha was stating. This leads up to this
29:07
very unusual situation we're living in.
29:11
And Torben, just to continue on that point,
29:14
I'm sure inflation is one of
29:15
the biggest risks that your industry is facing at the moment,
29:19
but it's not only about the price of cars getting higher and higher
29:24
as compared to before.
29:25
As you mentioned, it's also about the cost of raw materials going up, but
29:29
it's also about vehicle financing becoming much more expensive than it used to be.
29:34
And also, I think there could be some unique risks
29:38
because emerging markets, for example, could be undergoing currency depreciation,
29:42
which makes it even harder for you to sell cars outside
29:46
the base economy.
29:47
So are there any unique risks to the automobile industry
29:52
that you are trying to mitigate as part of your risk management function.
29:57
Yeah, I was touching upon that a little earlier
30:00
when I said you have to be definitely more localised.
30:03
I mean, back then you could use scale effects.
30:07
You had like one car
30:09
developed and then produced where it was, let's say,
30:13
where you had all the scale effects for each and every single individual part.
30:18
Nowadays, you have be more localised
30:22
and that also adds up to higher material costs. At the end of the day,
30:26
but you just have to do that. And then
30:29
because you have to
30:31
be more resilient and don't be dependent on geoeconomics,
30:36
for example, and geopolitics, you have to be resilient in order to be
30:41
able to sell your vehicles, your products all over the world at the same time.
30:45
We've got a load of really interesting questions.
30:47
We're not going to be able to get to all of them. But
30:50
here's one that I'll synthesise a couple of questions together.
30:56
So much of modern
30:59
industry has been organised around efficiency, optimisation,
31:03
standardisation, best practises, and the elimination of slack.
31:10
But does this mean
31:12
companies, organisations, may have undervalued
31:15
their institutional resources and made adaptation less possible?
31:20
So has that pursuit of efficiency,
31:23
cutting of fat in an organisation, made it harder for organisations to
31:29
analyse risk and perhaps much more importantly, to react and mitigate risk.
31:38
I hear deadly
31:39
silence. So I'm going to ask Natasha, what do you think?
31:44
You're looking across industry globally.
31:48
There has been a drive to efficiency.
31:50
So are
31:51
organisations now too slimline to actually deal with risk effectively.
31:56
I don't think so,
31:59
generally I don't think so.
32:00
Of course it depends on the context of the organisation,
32:03
but generally I don't think so.
32:04
I think it's an opportunity to start asking those what-if questions.
32:08
So now that organisations have gotten
32:12
to that place of efficiency and it's a well-oiled machine,
32:17
it's even more critical now
32:19
to ask those what if scenario questions.
32:23
What if these dependencies
32:27
and these critical factors we have fall apart
32:30
and this is where risk management comes in.
32:32
So it's even more critical time. I think it works hand-in-hand with each other.
32:37
Efficiency is great.
32:39
It allows organisations to meet their objectives
32:43
probably faster in the world of artificial intelligence
32:47
and making things easier to work with to help
32:51
decisions reach faster.
32:55
This is all great.
32:57
The part where risk management adds
33:01
that golden line or that thread is how do you maintain
33:06
that efficiency, maintain resiliency when it's an unknown world?
33:11
And how do you do that?
33:13
It's by asking those what if questions, using those scenarios,
33:16
using risk management as a tool to help you maintain efficiency.
33:20
So I think it works hand in hand.
33:22
And the good news is that also when I talk to my peers
33:25
in the industry, those questions are being asked,
33:29
those what if questions, because of this world of uncertainty.
33:32
And that is why we are now being asked and have a seat
33:36
at the table when it comes to strategic decisions.
33:39
I mean, also a couple of years back then, when I remember correctly,
33:43
there was this GRC approach with risk and compliance
33:47
and. This developed over time
33:49
and in this world of uncertainty, it becomes way more
33:53
evident that risk has a seat at the table when it comes
33:58
to strategic decisions on where do I have to lead my company.
34:03
But if I were to be a devil's advocate,
34:06
may I ask one of you to answer, in this trade-off between efficiency
34:10
and resilience given the current
34:13
geopolitical context, what is winning?
34:16
Which of these two are in the lead?
34:20
What we would like to win
34:23
is probably different from what is happening,
34:26
I would say.
34:27
I think the focus for everyone is on resilience,
34:30
and that's because of all the changes that have been happening
34:33
within recent years, and will continue to happen.
34:35
Change is here to stay. So I think everybody will want to
34:39
say resilience, because that's where the focus is.
34:42
But to get to the bottom line, or to get to whatever your objectives are, people
34:46
will naturally be looking at efficiency. But they would want to do that.
34:51
I'm not answering your question directly because I don't think
34:54
organisations are, one is winning over
34:57
the other. It's that very delicate balancing act.
35:01
Resiliency is so important in this world of unpredictability,
35:05
but you have to do it by being efficient.
35:08
So I don't know if one is winning or the other,
35:11
I think there's more focus possibly on some industries
35:14
on resilience, especially manufacturing because of supply chains.
35:18
But there's also that efficiency that has to come in there.
35:21
So I think it's a difficult question.
35:23
I don't think there's one winning over the other.
35:26
Also, from my experience, I would also say,
35:30
first of all, the line, especially as a European
35:34
car company right now, is efficiency, cost reduction,
35:37
and to be compatible at the end of the day with our competitors.
35:42
And I would always call it the hit rate, when I talk to my team,
35:48
the hit-rate of topics that are really highly probable that they will occur.
35:53
And when I talk then to the board of management
35:56
and in order to implement some measures that costs money
36:00
resilience costs money
36:01
it doesn't come for free if we you know supply chain
36:04
if we have like a second supplier that costs money
36:08
because you lose scale effects you have to develop it maybe twice
36:11
so that comes with a high price
36:13
but if the board then then relates to me and says, Torben,
36:18
how sure are you that something will happen?
36:21
And then it comes to human judgement, as we had before.
36:24
But as I said, this hit rate of topics that I put on the table
36:28
has to be very high.
36:30
And then resilience,
36:32
then the board is happy
36:34
to spend money on those resilient measures.
36:38
But it has to have to be balanced.
36:41
I'd like to ask a couple of questions on particular types of risk.
36:44
And one member of our audience, Gautam Puri, is asking,
36:48
how are environmental issues in global situations
36:51
navigated from a risk management perspective?
36:54
Before I ask you to answer that, I'll just note that in that annual report
36:58
that comes out in January, the Global Risk Report,
37:02
worries about war
37:03
and conflict and worries about AI had suddenly pushed
37:07
a lot of environmental concerns out of the short and medium term risks.
37:10
But in the long-term risk,
37:12
which we define as 10 years, it's still, it's not just the number one
37:16
risk, climate change, it is the number 1 and 2 and 3
37:20
risk. Those being extreme weather events,
37:23
biodiversity loss and critical change to earth systems. Ten years away
37:28
and when you've got all these other
37:30
perhaps more urgent things, if you're under the bombs
37:32
or if your supply chains have been cut off,
37:34
maybe you're not worrying about environmental.
37:36
But then we see something like Nepal, a landslide happening with terrible risks,
37:41
both for human life, for the economy of the area, for the water supply
37:45
of actually an enormous part of that part of the world.
37:49
Where do the two of you see environmental risk,
37:52
which often gets pushed away from the near term?
37:56
Which one of you wants to go first on the environment?
37:59
I'll go first
38:00
and I'll just say I think my opinion personally
38:04
in terms of ranking and rating them, they should be higher.
38:08
I think that they are underestimated.
38:10
If we just look at the risk of El Nino and the impact that El Nino is going to
38:14
have when it's fully on board, I think it's underestimated
38:18
and it's not because the scientists are underestimating the phenomenon.
38:22
I think it's because
38:24
we as risk
38:25
professionals and businesses and boards, we are underestimating
38:29
the cascading effect that these climate risks, for example
38:34
El Nino is going to have on other aspects
38:38
such as geopolitics, such as food and water
38:42
supply and food and water insecurity.
38:45
So I think there is a large scale underestimation of climate risks
38:51
and currently in particular El Nino.
38:53
Torben, you're nodding.
38:56
Well,
38:57
we have the perfect answer.
38:59
Also, just to add up on this, I think environmental topics.
39:04
Are a little bit more predictable, I would say,
39:07
because we know that they are coming. It's slightly increasing.
39:10
Of course, we don't know where El Nino
39:12
is going to, of course, but we know it's coming.
39:16
Let me put it that way.
39:17
And then when it comes to our supply chain, yes, we are looking
39:21
as much as we can in order to where are our suppliers located.
39:26
So if a storm comes up, of course
39:29
we have an early warning system and also talking to our suppliers,
39:32
hey, something might come up.
39:33
Maybe you should
39:34
increase your inventories, for example, for a short amount of time.
39:38
Maybe we have a different supplier, how we could use that.
39:41
So, and also when we work together with a supplier,
39:46
that's part of the proposal
39:49
of the supplier of how he deals with those environmental topics.
39:52
When it comes to our own assets. And when it comes to,
39:56
let's say, long-term water shortages on the one hand, because it also consumes
40:01
a couple of litres to produce a car, that is something
40:05
we already have on our
40:06
radar. We try to work on that and
40:09
reduce the number of
40:11
water that we need in order to produce the car. That has to be reduced.
40:17
And also when it comes to water shortages in terms of what it does
40:21
to the soil in our production facilities. Because also
40:25
if the soil is shrinking and there might be some eruptions,
40:30
we're also already looking at those topics
40:34
in order to be also there more resilient.
40:37
But I would say in general it's more predictable.
40:39
That's more on the long term because of the climate change
40:43
is there. And we can adapt to that.
40:48
We have time for that.
40:49
It's different than like a landslide. Then
40:54
it's very hard to predict.
40:56
And just to add to that, a more philosophical take,
41:00
if you may, we as a society tend to be very myopic about things.
41:06
So when you think about climate change, environmental risks,
41:09
you automatically tend to think that it's a long-term risk.
41:12
It's not going to impact our generation.
41:13
So you tend to say that we'll think about it when it comes.
41:17
What we do not realise is the interconnectedness
41:21
associated with these environmental risks.
41:23
You have extreme heat, that is going to cause power disruption,
41:26
that's going to delay productions, that's going to impact the supply chain,
41:30
it's going raise prices,
41:31
it's going to weaken demand,
41:33
it's going to create liquidity constraints, and it's
41:36
going to set off this vicious cycle which cannot be reversed.
41:40
So, I think somewhere
41:41
we're all to be blamed because we read these reports saying that,
41:45
oh, this is going to happen in the next 200 years, we're going to go extinct,
41:49
but we ask ourselves,
41:50
are we going to be alive for the next two hundred years?
41:52
Maybe not.
41:53
So, maybe let's think about it
41:55
ten years later.
41:56
Right,
41:57
well, the other area I wanted to ask about,
42:01
which might be related to, are we going to be around in 200 years'
42:03
time, is, of course, artificial intelligence.
42:07
Talk about known unknowns.
42:09
I mean, just this year, people's, you know, the civilians among us
42:13
who aren't on this all the time, either working in AI or working in risk
42:18
management, we've seen that conversation just evolve
42:21
so much over just the last 10 months.
42:24
Where does AI fit in? There,
42:27
because there's so much, you know, from job displacement,
42:31
but then there's things about the environment as well,
42:35
and there's thing about
42:38
the misalignment, as the euphemism,
42:41
basically, the robots going bad on us.
42:44
It still seems so science fiction to so many of us, but we know
42:47
from what's happened over the last few months, it's not.
42:50
It's already, hacks are happening by AI agents, for example, cyber security.
42:56
So much about that is about AI.
42:58
So I don't know, again, Torben, do you want to say,
43:01
are you looking at the risks from AI?
43:03
They might be as difficult to forecast as some of the climate change risks,
43:07
but you surely have to be looking at them, don't you?
43:10
Yeah, of course we're looking into that.
43:13
But I'm a huge fan of using AI
43:18
and the possibilities and opportunities that we have
43:22
just by the tools that are out there already right now.
43:25
This will even increase over the next couple of years.
43:30
But in general, I think that this topic of AI
43:35
is a little bit overhyped, to be quite honest,
43:37
because as we also stated earlier, here in this meeting,
43:43
there will always be this human judgement,
43:46
and this is this is evident for me,
43:49
and that's why I'm just pushing as much as I can in order to use AI.
43:54
Yes, as I said, there comes a lot of risks with it
43:58
when it comes to cybersecurity. We all read the
44:02
news on that, that it finds vulnerabilities,
44:07
but this also helps a company to be more safe at the end of the day,
44:11
because if you know where you're vulnerable, then you can
44:14
work on it and close that gap.
44:16
And if I may weigh in here,
44:19
so I think it depends on the context and the organisation that you work in.
44:24
We are a little more cautious because we deal with very confidential information
44:29
about agreements, about disputes in global trade.
44:34
So
44:37
we need to have great assurance that the use of AI is not going
44:42
to impact the security of our data. The confidential data that we hold.
44:48
And that's something that we're battling it and we're managing with that as we go along
44:52
and that's fine.
44:53
But I think, put the WTO aside for a minute,
44:57
the question that I have been coming up with recently and I think this is
45:01
something that all organisations should look at, the question is not just
45:06
what are the risks to AI or of using AI,
45:11
the question then becomes,
45:13
what is the risk of not using AI
45:17
when your competitors are, where they're
45:20
becoming more efficient, they're coming more resilient.
45:24
And I'm not saying that everybody should just go out and just, you know,
45:28
just be very easy about it.
45:32
But it's one of those conversations you have
45:35
to weigh up the risks of using it and the risks of not using it.
45:40
But it really depends on the context in which you're operating in.
45:43
We're coming towards the end of our time.
45:46
Is there a note of optimism?
45:48
We always like to end on that
45:49
from the three of you.
45:51
Actually, that was pretty optimistic from both of you on AI.
45:55
I work in the risks team so you really can't blame me.
45:58
I don't expect any optimism there,
46:02
but, you know,
46:04
we are living in this turbulent time.
46:07
Things are changing
46:08
on the international scene, on the multilateral scene, on trade,
46:12
if you're in the automotive sector, so much is changing.
46:16
Torben, you've said you love
46:18
being at the centre of this spider's web though, so that's great.
46:22
I guess the upside of looking at risk is,
46:25
at least if we know the risk, we can do something about it.
46:27
But can either of you give us just one line of optimism
46:31
as we close out this discussion? Torben?
46:34
Yeah, of course.
46:34
I mean, I'm risk manager by profession right now, but
46:39
risk management is not about avoiding risk.
46:41
Risk management is about taking opportunities.
46:44
Because if you identify a risk, that usually does not occur
46:48
only at my company right now. It occurs to the whole industry.
46:51
And my job is to, you know, make my company better than our competitors.
46:55
So I'm always looking for opportunities, first of all,
46:59
and that's why you always find me optimistic.
47:01
That's just my nature.
47:04
But what really makes me optimistic
47:06
is that in this world of uncertainty right now, I think the picture in general
47:11
gets a bit more clearer, and teams are adapting to it.
47:14
They adapt that this is the new normal,
47:17
and this actually in general makes me optimistic
47:21
that we adapt to it and we deal with it.
47:26
And absolutely the same
47:27
for me.
47:29
It's all positive.
47:31
I'm completely in love with risk management
47:34
because it allows you to be creative, to find a solution
47:39
where probably someone else didn't think about. Sit back, think about the
47:43
what-ifs and find ways to actually still meet your needs.
47:47
It is an opportunity.
47:49
So welcome to the age of unpredictability,
47:52
but also welcome to to the to the age of opportunity,
47:56
of creativity, to find solutions for those things that we're not aware of.
48:01
And what makes me optimistic is their optimism
48:04
because I think there is a growing awareness among the risk
48:08
management functions and chief risk officers in particular
48:11
that it's not about predicting every crisis, it is about being prepared
48:16
for a wide variety, various permutation
48:20
and combination of risks that can manifest at any point of time.
48:24
So I think we're in a good place.
48:26
And if you want to be prepared
48:27
for those risks, or indeed you're in love with the whole idea of risk management,
48:31
you should start by reading the Risk Management Reimagined report.
48:36
Absolutely. Please do, and please share
48:39
with us your feedback, your comments, whether you love it, hate it,
48:43
how can we improve upon it.
48:46
And if you're listening to this on Radio Davos link to that in the show notes.
48:49
If you're watching this live, and you're not already following,
48:53
please do follow Radio Davos wherever you get podcasts.
48:56
It's a weekly show that looks at the world's
48:58
biggest challenges and how we might rise to them.
49:01
Get it on any podcast app or at wef.ch/podcasts where you
49:05
also find our sister programmes, Meet the Leader and Agenda Dialogues.
49:09
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49:12
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49:15
for something like this, for a similar livestreamed discussion,
49:18
you can become a digital member of the World Economic Forum.
49:22
There's a link to that in the show notes. For now, thanks to our guests, Natasha
49:26
Fields of the World Trade Organization and Torben Oeder of Volkswagen.
49:31
Thanks very much for joining us.
49:33
Thanks for having us.
49:34
And thanks to my co-host
49:36
Mitali Chatterjee. And thank you for watching and listening.
49:39
Radio Davos will be back next week.
49:41
Thanks for watching, listening, and goodbye.